Hoping Employment Takes Off…

Things do look better, but assuming recent trends don’t end up like the skier in the link the question is how strong growth will be. Will it be just enough to absorb population growth, but no more? Or will there be an acceleration of growth that allows us to provide jobs for new entrants to the labor force and also begin to reemploy the milllions of people who lost jobs during the recession and have had no luck finding new ones?

I wish I was confident that will happen, and happen fairly soon. In the past, such bursts of activity during the recovery phase were normal and expected. But as I noted recently, it’s hard to see where the needed jump in demand will come from:

…no matter which sector you point to, government, business, households, or foreigners, there is little reason to expect the large increase in demand needed to drive an economic recovery. Things are looking better, and the green shoots might just be real this time around, but we are still a long, long way from returning to whatever our new normal might be.

It doesn’t have to be this way. Although recessions that are caused by financial collapses are among the most difficult to recover from and lost decades are not at all unusual, as Christina Romer recently highlighted effective government policy (monetary and fiscal) can shorten the recovery time considerably.

As policymakers head home for the holidays, I hope they will give some thought to the families that could be having a much merrier Christmas if they had pursued more aggressive policy. And if they (and the powerful interests pulling their strings) do have such a “Christmas Carol” revelation, I hope they will also realize that it’s not too late to do more.

I know this is a wish that’s unlikely to come true — we’ll be lucky to avoid job-killing austerity measures in the coming year (lumps of coal for all!). But it’s Christmas Eve, and maybe Santa will bring a surprise.

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987 and served as head of the Economics Department for five years. His research examines the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables with a focus on asymmetries in the response of these variables to policy changes, and on changes in the relationship between policy and the economy over time. He has also conducted research in other areas such as the relationship between the political party in power, and macroeconomic outcomes and using macroeconomic tools to predict transportation flows. He received his doctorate from Washington State University.